Has Electronic Arts’ Operating Efficiency Improved Or Faltered?

We have measured Electronic Arts’ operating efficiency by determining how much revenues (product and services) the company generates for every dollar spent on operating activities (SG&A excluding non-cash items) and how it has trended over the years. The results of the same are a mixed-bag. From the perspective of product sales, the company’s operating efficiency has faltered over the past few years and it is expected to trend the same way in the future.

Money spent on operating expenses for every game unit sold is projected to increase from $22.63 in 2014 to $26.34 in 2018. Product revenue generated for every dollar spent on operating activities is expected to shrink from $2.74 to $2.53 in the same period. Slowdown in sales of titles other than Fifa and Madden, and higher marketing costs for new generation console games are responsible for the decline.

However, Electronic Arts’ service revenues for every dollar of operating expenses has increased in the last couple of years and we expect it to continue the same way driven by an increase in service revenue per unit sold. This is attributed to the company’s increased focus on the high-margin digital stream, higher mobile downloads, and emergence and subsequent success of next-gen consoles, that support games with downloadable content.

Have more questions on Electronic Arts? See the links below.

• What Is Electronic Arts’ Revenue & Cash Profit Breakdown?
• What’s Electronic Arts’ Fundamental Value Based On Expected 2016 Results?
• By What Percentage Have Electronic Arts’ Revenues And Gross Profit Grown Over The Last Five Years?
• How Has Electronic Arts’ Revenue And Cash Profit Composition Changed Over 2011-2015?
• Electronic Arts’ Q4 FY 2016 Earnings Review: Latest Editions Of Sports Titles To Lead The Revenue Growth

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